Note 13 - Stockholders' Equity and Earnings per Share

12 Months Ended

Dec. 31, 2013

Earnings Per Share [Abstract]

Earnings Per Share [Text Block]

13.     Stockholders’ Equity and Earnings per Share

As a bank holding company, the Bancorp’s ability to pay dividends will depend upon the dividends it receives from the Bank and on the income it may generate from any other activities in which it may engage, either directly or through other subsidiaries.

Under California banking law, the Bank may not, without regulatory approval, pay a cash dividend that exceeds the lesser of the Bank’s retained earnings or its net income for the last three fiscal years, less any cash distributions made during that period. Under this regulation, the amount of retained earnings available for cash dividends to the Company immediately after December 31, 2013, is restricted to approximately $54.0 million.

During 2003, the Bank formed Cathay Real Estate Investment Trust (“Trust”) to provide the Bank flexibility in raising capital. In 2003 and 2004, the Trust sold to accredited investors $8.6 million of its 7.0% Series A Non-Cumulative preferred stock which pays dividends, if declared, at the end of each quarter. This preferred stock qualified as Tier 1 capital under current regulatory guidelines. The Company paid dividends of $605,000 in 2013, $605,000 in 2012, and $605,000 in 2011. The Bank dissolved the Trust on December 23, 2013.

The accumulated other comprehensive loss as of December 31, 2013, was all from unrealized losses on securities available-for-sale. Activity in accumulated other comprehensive income, net of tax, and reclassification out of accumulated other comprehensive income for the three years ended December 31, 2013, was as follows:

	2013
	Pre-tax			Tax expense			Net-of-tax
Beginning balance, net of tax							$	465
Net unrealized losses arising during the period	$	(117,515	)	$	(49,407	)	$	(68,108	)
Reclassification adjustment for net securities gains included in net income		27,362			11,503			15,859
Net unrealized gains arising from transferring securities held-to-maturity to available-for-sale		38,052			15,997			22,055
Total other comprehensive income	$	(52,101	)	$	(21,907	)	$	(30,194	)
Ending balance, net of tax							$	(29,729	)

The Board of Directors of the Bancorp is authorized to issue preferred stock in one or more series and to fix the voting powers, designations, preferences or other rights of the shares of each such class or series and the qualifications, limitations, and restrictions thereon. Any preferred stock issued by the Bancorp may rank prior to the Bancorp common stock as to dividend rights, liquidation preferences, or both, may have full or limited voting rights, and may be convertible into shares of the Bancorp common stock.

Pursuant to the U.S. Treasury’s Troubled Asset Relief Program Capital Purchase Program under the Emergency Economic Stabilization Act of 2008, on December 5, 2008, the U.S. Treasury purchased 258,000 shares of the Company’s Series B Preferred Stock in the amount of $258.0 million. The Series B Preferred Stock pays cumulative compounding dividends at a rate of 5% per year for the first five years, and thereafter at a rate of 9% per year. In conjunction with the purchase of senior preferred shares, the U.S. Treasury received warrants to purchase 1,846,374 shares of common stock at the exercise price of $20.96 per share with an aggregate market price equal to $38.7 million, or 15%, of the senior preferred stock amount that the U.S. Treasury invested. The exercise price of $20.96 on warrants was calculated based on the average of closing prices of the Company’s common stock on the 20 trading days ending on the last trading day prior to November 17, 2008, the date that the Company received the preliminary approval of the purchase from the U.S. Treasury. In 2013, the Company redeemed all $258 million Series B Preferred Stock issued under the U.S. Treasury's TARP Capital Purchase Program. On December 9, 2013, the U.S. Treasury sold all of the warrants that it held for $13.1 million, or $7.20 per warrant, through a secondary public offering.  

The following is the reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the years as indicated:

	Year Ended December 31,
	2013							2012							2011
	Income (Numerator)			Shares (Denominator)		Per Share Amount		Income (Numerator)			Shares (Denominator)		Per Share Amount		Income (Numerator)			Shares (Denominator)		Per Share Amount
	(In thousands, except shares and per share data)
Net income	$	123,143						$	117,438						$	100,150
Dividends on preferred stock		(9,685	)						(16,488	)						(16,437	)
Basic EPS, income/(loss)	$	113,458			78,954,898	$	1.44	$	100,950			78,719,133	$	1.28	$	83,713			78,633,317	$	1.06
Effect of dilutive stock options					183,085							4,164							7,335
Diluted EPS, income/(loss)	$	113,458			79,137,983	$	1.43	$	100,950			78,723,297	$	1.28	$	83,713			78,640,652	$	1.06

Options to purchase an additional 2.2 million shares at December 31, 2013, were not included in the computation of diluted earnings per share because their inclusion would have had an anti-dilutive effect. Options to purchase an additional 4.0 million shares and warrants to purchase an additional 1.8 million shares at December 31, 2012, were not included in the computation of diluted earnings per share because their inclusion would have had an anti-dilutive effect.